Research Capital Corporation analyst André Uddin is holding onto his value perception of Valeo Pharma (Valeo Pharma Stock Quote, Chart, News, Analysts, Financials CSE:VPH) as he maintained a “Speculative Buy” rating and $1.20/share target price for a projected return of 79 per cent in an update to clients on Friday.
Founded in 2003, Valeo Pharma specializes in commercializing branded pharmaceutical products for the Canadian market, featuring a portfolio of 11 commercial-stage products across respiratory, hospital, neurology, oncology and other product sectors. Uddin’s latest analysis comes after Valeo reported its financial results for the first quarter of its 2022 fiscal year, which Uddin found to be soft, though his overall outlook remained changed.
“We are keeping our FY22 quarterly estimates intact as we believe combined sales of Enerzair, Atectura and Redesca should continue growing,” Uddin said.
Valeo’s financial results were headlined by $4.2 million in revenue for a 121 per cent year-over-year increase, though the number was still a miss in relation to the Research Capital projection of $5.1 million. Uddin attributed the miss to product sales coming in lower than expected.
The company also produced a $4.4 million loss in adjusted EBITDA to miss the Research Capital forecast of a $3.3 million loss, while the reported $5.9 million net loss also came in behind the Research Capital estimate of a $3.8 million loss.
As of the end of the quarter, the company had $12.1 million in cash on hand, contrasted with $21.1 million in convertible debt and $0.8 million in non-convertible debt.
Valeo has a trio of product launches in the pipeline, with its Enerzair and Atectura offerings expected to serve as primary growth drivers for the company alongside its Redesca offering. Valeo said in terms of reimbursement, over 90 per cent of privately insured lives in Canada now have access to Enerzair and Atectura and that public coverage is secured in seven Canadian provinces as well as in some federal plans.
Valeo has a team of 65 sales professionals to help support the product launches, with Uddin pointing out that there’s an expectation for combined sales to diversify the company’s revenue base.
“Our first quarter 2022 results clearly demonstrated the growing impact of Redesca, Enerzair and Atectura on our revenues and margins,” said Luc Mainville, Senior Vice-President and Chief Financial Officer of Valeo Pharma in the company’s March 24 press release. “With the cost of implementing our new business and commercial infrastructure now fully accounted for, we anticipate that the sequential revenue growth of our lead products will expand our operating margins. This will help steadily decline our quarterly operating loss and favourably position Valeo to achieve cash flow positive status in the last quarter of the year on a going forward basis.”
After finishing 2021 with revenue of $13.6 million, Uddin has a fiscal 2022 estimate of $36.5 million, which would suggest a year-over-year increase of 168.4 per cent. Uddin then forecasts a jump to $75 million for potential year-over-year growth of 105.5 per cent in 2023 before moving into nine figure projections in 2024 at $108.3 million for a year-over-year jump of 44.4 per cent, then rounding out his forecast with a projection of $126.4 million in 2025.
Uddin expects the company’s P/Sales multiple to be cut in half from the forecasted 1.4x in fiscal 2022 to a projected 0.7x in 2023 before dipping to 0.6x in 2024 and 0.5x in 2025.
Meanwhile, Uddin projects an adjusted EBITDA loss of $7.9 million in fiscal 2022 before turning positive in 2023 at a projected $9.1 million and an implied margin of 12.1 per cent, with the estimates growing in 2024 ($24.9 million and an implied margin of 23 per cent) and 2025 ($32.3 million and an implied margin of 25.6 per cent).
According to Uddin, the company trades at a discount to peers, with the 1.4x P/Sales multiple coming in under of the sector average of between 2.2x and 2.6x, while an EV/Sales multiple of 1.7x also is below the sector average of between 2.4x and 2.5x.
“It is time for management to deliver solid sales growth – which we anticipate,” Uddin said. “We view VPH’s valuation as attractive to growth investors.”
Valeo Pharma’s price on the Canadian Securities Exchange has dropped by 46.3 per cent over the last 12 months, and 9.6 per cent since the start of 2022. The stock closed at a 52-week high of $1.25/share on April 26, but has dropped off since then, hitting a 52-week low of $0.52/share on March 9.
Since the release of Uddin’s analysis, Valeo announced it has received final approval to begin trading on the Toronto Stock Exchange beginning on Tuesday. The stock will be delisted from the CSE as of Tuesday and will trade on the TSX under the ticker VPH.
“Listing on the TSX, Canada’s senior stock exchange, is an important step supporting our development as a leading Canadian pharmaceutical company,” said Saviuk in a press release. “The TSX platform enhances Valeo’s exposure to a broader investor audience which will benefit all our shareholders.”